Having a net worth over $40 billion may command some authority and attention for one’s views on economics and taxation. But it should not buy one an exemption from basic logic, intellectual integrity, or consistency.

Such seems to be case with Warren Buffett, who yet again took to the op/ed pages of the New York Times this week to call for higher taxes on citizens earning more than $500,000. The idea that higher income people should pay more in taxes, whether born of a desire for greater progressivity and/or a desire to raise more revenue, is certainly a legitimate viewpoint. However, any serious person espousing such an argument should be expected to address several basic questions: What will the standard of fairness be? How is it to be determined that any particular income group is paying its “fair share?” And if taxes are to increase, whether to address the deficit or for “fairness,” what degree of negative impact on economic growth and investment is one willing to tolerate? Regrettably, the recent presidential campaign featured much demagoguery but few answers. Buffett is no more illuminating.

The so-called Oracle of Omaha begins by making the manifestly absurd assertion that tax rates do not influence investment behavior. Astonishingly, he claims that when he was a fund manager, “never did anyone mention taxes as a reason to forgo an investment opportunity….” “Only in Grover Norquist’s imagination,” Buffett derisively contends, do investors adjust their plans based on the prospects for taxation. Such statements defy economic logic. The amount and nature of taxation, whether of the income stream generated by a particular investment, or that levied on interim dividends or capital gains realized upon the disposition of an asset, must be among the many complex factors considered by any rational investor in assessing the relative merits of an investment opportunity. If this proposition is not self-evident to you, you can go straight to the authority himself.

Buffett has left extensive and contemporaneous documentation of his investment thinking going back five decades. And it is clear not only that he has always understood this fundamental economic axiom, but that tax considerations have been a critical animating factor throughout his business career. (Indeed, during the period when he was initially accumulating great wealth, Buffett was quite passionate about the desirability of low tax rates.) As early as 1963, he wrote a letter to the investors in his hedge fund, The Buffett Partnership, Ltd., in which he laid out some of the fundamental tenets of his investment philosophy as it relates to taxation. One was the following:

“I am an outspoken advocate of paying large amounts of income taxes – at low rates.”

He goes on to note that in the real world not all investors share his approach: “A tremendous number of fuzzy, confused investment decisions are rationalized through so-called ‘tax considerations.’” One would think this behavior has meaningful economic consequences in the aggregate. Buffett assures his partners that he is utterly disciplined and rational, though no less aware of the importance of taxation to investment results:

“My net worth is the market value of holdings less the tax payable upon sale. The liability is just as real as the assetunless the value of the asset declines (ouch), the asset is given away (no comment), or I die with it….Investment decisions should be made on the basis of the most probable compounding of after-tax net worth with minimum risk.” [emphasis added]

That oblique reference to giving assets away is highly revealing, and we’ll return to it in a minute. Scarcely a year later, the emerging star fund manager reported to his investors that the Buffett Partnership had sold some investments and thus would incur taxable realized gains (the quaint sum of $2,826,248.76 in total, as it turned out). But he assured them that virtually all of his gains qualified for long term tax treatment. “We make investment decisions based on our evaluation of the most profitable combination of probabilities. If this means paying taxes – fine – I’m glad the rates on long-term capital gains are as low as they are.” [emphasis added]

Sensitivity to tax rates and structures, if not extensive efforts at tax minimization, has been a consistent focus for Buffett. In 1990, he shared with his stockholders the sample of a letter he had sent to a business owner whose company was a prospective acquisition target for Berkshire Hathaway. In it, Buffett explained to the potential seller why it was essential that the seller’s family retain a 20% interest in their business:

“We need 80% to consolidate earnings for tax purposes, which is a step important to us.”

One can only wonder, whether the deal would have happened, and at what price, if the seller had insisted on retaining 21% or more.

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We also need to be cognizant of Warren’s age and financial condition. With only perhaps 15 more laps around the sun left before he checks out, it’s obvious he has great concern for his legacy. Money will do him no good but it can BUY him love and popularity. A TRUE philanthropist would donate incognito… Unlike Warren who wants credit to polish his final legacy.

Sorry Warren, but looks like you just want to hold OTHERS back from achieving what you have done. I do hope that you read this expose by Daniel. Now go put your clothes back on. You look disgusting!

just before I looked at the check which was of $8809, I did not believe …that…my brothers friend was like actualey erning money in their spare time on their apple labtop.. there dads buddy had bean doing this for less than ten months and as of now cleared the mortgage on there place and bourt themselves a Jaguar E-type. this is where I went…. WWW,BIT40,ℂOℳ

The charitable giving tandem of Warren Buffet and Bill Gates has always miffed me. While Bill Gates is commendably responsible for creating much employment in this country and worldwide, I know of at least one furniture company that Mr. Buffet and Berkshire Hathaway purchased and sent the manufacturing to China. I always see him on CNBC strolling through the factory floor of some over-seas plant. I have always wanted to grab the both them by the collar and say, instead of giving all those billions to charity why don’t you come up with a manufacturing business venture based in the USA? A JOB, the gift that keeps on giving every other Friday! What a concept. Then all those workers can give from their pockets to charities and pay taxes to raise more revenue. Woops; It is probably too tough to start a business in this country with all the taxes, regulations and Obama care on the way. What was I thinking. Never could work.

Shuchman performs a service in demonstrating the difference between the old Buffett and the new Buffett. There surely is a national debate to be had on the sometimes-tension between economic productivity and the demands of fairness. But this debate must be conducted under sound and logical rules that discourage self-aggrandizing grand-standing. Shuchman holds Buffett’s, and everyone’s, feet to the fire. He is always a pleasure to read.

Another example of taxes influencing a investment decision can be found in his ’88 letter to shareholders describing an investment in 1954.

http://www.berkshirehathaway.com/letters/1988.html

“…Rockwood wished to unload its valuable inventory – quickly, before the price dropped. But if the cocoa had simply been sold off, the company would have owed close to a 50% tax on the proceeds.

The 1954 Tax Code came to the rescue. It contained an arcane provision that eliminated the tax otherwise due on LIFO profits if inventory was distributed to shareholders as part of a plan reducing the scope of a corporation’s business. Rockwood decided to terminate one of its businesses, the sale of cocoa butter, and said 13 million pounds of its cocoa bean inventory was attributable to that activity. Accordingly, the company offered to repurchase its stock in exchange for the cocoa beans it no longer needed, paying 80 pounds of beans for each share.

For several weeks I busily bought shares, sold beans, and made periodic stops at Schroeder Trust to exchange stock certificates for warehouse receipts. The profits were good and my only expense was subway tokens.

The architect of Rockwood’s restructuring was an unknown, but brilliant Chicagoan, Jay Pritzker, then 32.”

Buffett is an asshole who needs to shut his mouth. Always with the “I know what is best for everyone else” crap. I don’t care if he gives all his money away, burns it or squanders it on a nasty drug habit. He needs to stop trying to influence what happens with other people’s money. I don’t find anything about the man to be refreshing, down to earth, etc.

Excellent Article. 30% minimum tax on millionaires? Yeah right. Yet another example of Buffet feigning concern and pretending he’s a “Good Rich Guy”, one who liberals adore. Buffet is a smart businessman who knows it’s good business to play this role. But fewer are buying it. Watch what Buffet does, not what Buffet says. Throughout his career Buffet continues to pay a little tax as possible. Buffet knows that if perceived as a conservative, the liberal media and establishment would paint a nice big bulls eye right across on his forehead. And his life would be miserable. But this way, as “the good billionaire”, it’s a lot easier for him to operate.

If Mr. Buffet is so concerned about the wealthy paying their fair share, maybe he should lobby of caps on charitable deductions in estate planning. Why should he be able to pass on all of his wealth to Mr. Gates’ foundation without the government getting its fair share. The estate tax on his wealth would equal about a quarter of the revenue to be gained by increasing the taxes on the rich.